Which recent buyers owe more than their homes are worth

Start with the median FHA purchase loan that lenders reported in the Austin metro for 2022. With 3.5% down and the 1.75% upfront premium financed, a $366,000 house came with a $359,371 loan at 5.52%, Freddie Mac's average 30-year rate for June 2022.^7,14,26 Four years of payments have brought the balance down to $338,383. FHFA's purchase-only index for Austin is 14% below its June 2022 level, which values the house at about $315,636.²⁷ This composite borrower, an illustration built from HMDA's median loan, owes about $22,747 more than the house would bring.

Zillow's index puts the same house at about $268,659, and the gap at $69,724.²⁸ The difference between the two index readings, about $47,000, is several times the buyer's $12,810 down payment, so the choice of index is part of the measurement.

We ran the same arithmetic on every owner-occupied home purchase loan that lenders reported under the Home Mortgage Disclosure Act for 2021 to 2025: 15.5 million loans, each with its own combined loan-to-value, interest rate and term, priced against its metro's FHFA index. A spread for how far a single house strays from its metro index, calibrated to ICE's published counts, turns each loan into a probability of being underwater. By that estimate, 730,400 of the 12.0 million loans still outstanding owe more than the home is worth as of 2026 Q2.

The count climbs with each newer vintage: about 9,900 of the 2021 loans, 66,100 from 2022, 111,800 from 2023, 215,500 from 2024 and 327,100 from 2025. Newer loans have paid down less principal, many began close to the full price, and the 2021 buyers caught most of the run-up that followed.

About 81% of the underwater loans owe less than 110% of the home's value, and about 5,900 owe 125% or more, the line ATTOM uses for seriously underwater.³ Selling costs widen the group that would need cash to move. At a 7% cost of sale, about 1,692,200 of these loans would need money at the closing table to pay off the lender.

ICE, which values homes property by property, counted about 813,000 underwater borrowers in the second quarter across every vintage, concentrated among FHA and VA borrowers who bought from 2022 to 2025.¹ Coverage of ICE's full report put 85% of that count in 2022 or later loans.⁵ Our estimate for 2022 to 2025 loans at the same date is 720,500, and that match is by design: we set the spread for single houses so the national count comes close to ICE's, then checked the metro results against ICE's figures for Austin and Cape Coral.

ICE's count was up 44% from a year earlier.¹ Prices have stalled while rates stayed high: FHFA's purchase-only index was up 2.4% from a year earlier in August, Redfin's median sale price for the four weeks ending Oct. 25 was down 0.1% from a year earlier, its first annual decline in more than three years, and Freddie Mac's 30-year average was 7.18% on Nov. 5, against 6.22% a year before.^7,8,9

At the end of 2009, First American CoreLogic counted 11.3 million properties with mortgages in negative equity, 24% of the total.⁶ Today's national figures are between about 2% and 3%. Cotality, the company CoreLogic became, puts it at 2.1% of mortgages for the second quarter of 2026.² ATTOM counts 3.2% of mortgaged homes as seriously underwater, owing at least 125% of value, up from 2.7% a year earlier.³

The providers use different valuation models, different loan files and different lines, so their figures belong side by side, each with its definition, and our 6.1% belongs to a narrower group: purchase loans made in the last five years, the borrowers with the least time to build equity. In 2009 a quarter of all mortgaged owners were underwater; now the group is concentrated in recent, low-down-payment loans in a handful of metros.

By count, the Dallas-Fort Worth metro leads with about 37,900 underwater loans, 10% of its recent purchase loans, followed by Houston at 28,700, San Antonio at 25,400 and Austin at 21,400. By share, Cape Coral leads: 22% of its 2021 to 2025 loans are underwater, then San Antonio at 20% and Austin at 17%. Across the 386 metros with at least 2,000 purchase loans made from 2021 to 2025, 31 have 10% or more of those loans underwater.

Against all mortgaged homes, the measure ICE reports, Cape Coral comes to 7.4%, San Antonio 6.6% and Austin 5.2%, using the Census Bureau's 2025 count of homes with a mortgage.³⁰ ICE's figures for the second quarter were 11.4%, 6.9% and 6.6%.⁵ Ours run lower in Florida, partly because they leave out loans made before 2021 and partly because ICE values each home with its own models.

About 60% of the underwater loans are in metros whose FHFA index is within 2% of its peak or at a new high, and about 35,100 are in metros down more than 10%. Falling prices explain much of the depth in Austin and Cape Coral. San Antonio's purchase-only index is 3.9% below its peak; there, FHA, VA and USDA loans are 58% of recent purchase loans, VA alone 26%, and they account for 82% of the underwater ones. Across most of the map the cause is a high starting loan-to-value, slow early principal at today's rates, and the spread of single houses around a flat metro index.

The stripes below show the mechanism for one buyer at a time. Each cell is a hypothetical buyer who bought in that quarter at Freddie Mac's average rate, with the down payment you choose, and each cell's color is that buyer's loan-to-value today on the metro index. Blue cells are underwater, warm cells hold equity, and the darkest warm cells are close to the line. At 3.5% down with the FHA premium financed, 38 of the 660 cells are blue, in San Antonio, Austin, Denver, Washington, Cape Coral, Tucson and North Port. At 20% down, every cell is warm.

Dallas and Fort Worth appear as two rows because FHFA publishes a separate index for each half of the metro. Our Dallas County tier analysis ran the same probability method on county sale records and price tiers, and found most of the county's underwater borrowers close to even.

The programs set the starting line. A first-time VA buyer who puts less than 5% down pays a 2.15% funding fee, and most finance it, so a no-down VA loan starts at 102.15% of the price.¹³ An FHA buyer puts 3.5% down and usually finances the 1.75% upfront premium, which starts the loan at about 98.2%.¹⁴ Conventional programs reach 97% with 3% down. Those designs open ownership to buyers without large savings. They also leave the loan close to the value on day one.

At a 7% rate, the first year of payments retires about 1% of the balance. Selling costs come off the top. One 2026 survey put commissions near 5.5% and seller closing costs near 2.7%, about 8% in all; estimates run from about 5% to 10%, and this article uses 7%, which puts the line for a sale that covers the loan at 93% of value.²⁰ With flat prices, a VA buyer needs about 7 years of payments to get there, an FHA buyer about 4.6 years and a 5%-down conventional buyer about 25 months. At 2% annual appreciation those waits shrink to 37, 22 and 9 months.

FHA, VA and USDA loans are 30% of the recent loans still outstanding and 62% of the underwater ones: 14.1% of VA loans, 12.1% of FHA loans and 9.5% of USDA loans are underwater, against 3.3% of conventional loans.

We ran Austin's 2022 loans through three public indexes at the same date, June 2026, with the same spread for single houses. FHFA's purchase-only index, built from repeat sales of the same houses financed with Fannie Mae and Freddie Mac loans, puts 26% underwater. FHFA's all-transactions index adds appraised values from refinances and puts 19% underwater. Zillow's index for the middle third of homes, smoothed and seasonally adjusted, puts 55% underwater.^27,28

The indexes disagree on the size of Austin's fall. From its 2022 peak to June 2026, FHFA's purchase-only index is down 15.4%, the all-transactions index 11.3% and Zillow's 26.6%. In Cape Coral the three read 11.5%, 10.3% and 18.6%. Across the 30 metros in the stripes, Zillow shows the deeper decline in 24.

ICE's property-level count is the closest outside check. Its November 2025 report put about 25% of Austin's 2022 loans underwater, with data through about October 2025; our purchase-only run as of the third quarter of 2025 gives 29%.⁴ That is why the headline estimate uses the purchase-only index, with Zillow as a sensitivity. An index describes a metro, and the loss on a single loan depends on the house, so a portfolio figure should name its index and show how much it moves on another.

In September, 66% of builders in the NAHB and Wells Fargo survey used sales incentives and 38% cut prices, with the average cut at 6% for the sixth month in a row.²⁵ Lennar reported sales incentives equal to 12.9% of revenue for the quarter ended May 31, 2026.²³ D.R. Horton reported a 20.1% home sales gross margin for its March quarter and said it reflected higher sales incentives.²⁴

An incentive spent on a mortgage rate buydown lowers the buyer's payment while the contract price stays put. Appraisals tend to confirm the contract: a Philadelphia Fed study found about 30% of purchase appraisals exactly at the contract price and fewer than 10% below it.²¹ The loan is sized on that price. When the house later trades in the resale market without a builder paying down the rate, the buyer can start further from the water than the closing documents show. An analysis by John Comiskey, reported by the Wall Street Journal in November 2025, found 27% of the FHA loans that Lennar Mortgage made from 2022 to 2024 underwater, and 18% of those made by DHI Mortgage, D.R. Horton's lender.²²

Fannie Mae caps interested party contributions on conventional loans at 3% of value above 90% loan-to-value, 6% from 75.01% to 90%, and 9% at 75% or less.¹⁶ The illustrative FHA case below uses a 6% incentive package, the size of the average price cut builders reported, and moves the loan-to-value by about six points.

For appraisers, the work is the comparable file: report the concessions and buydowns on each sale, adjust for them, and use resales near the new construction to show where the market is. The UAD 3.6 series covers how the new form records sales and financing concessions.

Most underwater borrowers keep paying. A Boston Fed study of Massachusetts in the early 1990s found that fewer than 10% of owners with negative equity at the end of 1991 lost the home in the next three years.¹⁹ Ganong and Noel, working from bank account data, attributed 6% of underwater defaults to negative equity alone, 70% to a life event alone such as a job loss or illness, and 24% to both.¹⁷ In a Federal Reserve study of 2006 home purchases in Arizona, California, Florida and Nevada made with non-prime loans and no down payment, the median borrower defaulted strategically only when equity fell to about minus 62% of the home's value.¹⁸

An owner with equity who loses a job can sell and pay off the loan. An owner without it needs cash, a loss mitigation option or a short sale, and the lender or insurer takes the shortfall if those fail. Delinquency is already rising among government-insured loans. In the second quarter, the Mortgage Bankers Association put FHA delinquency at 11.79%, VA at 4.89% and conventional at 2.72%, with FHA's serious delinquency rate up 227 basis points from a year earlier, against 6 for conventional loans.¹⁰

VA borrowers have a new backstop. VA stopped taking new submissions to its Veterans Affairs Servicing Purchase program on May 1, 2025, then opened a Partial Claim Program on June 15, 2026, and servicers have until November 28, 2026, to put it in place.¹¹ On the FHA side, the Mutual Mortgage Insurance Fund reported a capital ratio of 11.47% at the end of September 2025, well above its 2% statutory floor.¹² For conventional loans with mortgage insurance, Fannie Mae's standard coverage is 30% of the claim at 90.01% to 95% loan-to-value and 35% at 95.01% to 97%, with lower minimum coverage options.¹⁵ Our feature on how Fannie Mae and Freddie Mac make money covers the rest of that chain.

These are our suggestions, drawn from the estimate and the sources above.

The calculator applies the article's arithmetic to one loan: the starting loan-to-value for the program, scheduled payments at the rate you enter, and the metro's index from the purchase month to the latest period. It shows the position of a typical house in that metro; a single house can be well above or below it. The default is the Austin composite from the first chapter.